Successful restructuring of public-sector operations

3 November 2008

The freeing-up of a number of public corporations has yielded better and cheaper services, claim BI researchers Kåre Hagen and Catherine B. Arnesen in a new research report.

In the years from 1992 to 2003 a large number of public-sector functions in Norway were hived off from the government administration into separate and free-standing undertakings. 'Agency' and 'Authority' were converted to 'State Enterprise' and 'Company' at a high rate. Recent years, however, have been quieter, with fewer such initiatives.

“What actually happened to the freed-up corporations?” ask Associate Professors Catherine B. Arnesen and Kåre Hagen at the BI Norwegian School of Management.

They have conducted a study of the restructurings of the former public corporations now known as Statnett (power transmission), Statkraft (power generation), Posten (the post office), Telenor (telecoms), various agencies in the railway sector, Avinor (airports), Mesta (highway construction) and Entra Eiendom (property).

The BI researchers were interested in finding out how the new state enterprises flourished, viewing them through the eyes of both business administration experts and ordinary users.

Are users and citizens enjoying better services? The researchers charted social impact on resource use and the attainment of political objectives.

Controversial freeing-up

The hiving-off of public-sector administration functions to state enterprises in the period 1991 to 2002 was a controversial process in its initial phases, as Arnesen and Hagen point out.

The freeing-up meant in the first place a fundamental change in the way democratically elected authorities exercised control of social developments.

At the same time, it meant adaptation to a European integration process and appeared threatening to entrenched labour interests.

“It was easy to paint a picture”, say the researchers, “of the process as an elite-driven first step toward a market economy run from Brussels and an undermining of the Nordic, equality-oriented welfare model that was so carefully built up after the Second World War.”

Welfare model in robust health

Today, with hindsight, it is possible to see that it did not go as badly as the sceptics feared. The doomsday prophecies are by no means fulfilled.

“There is broad agreement among social scientists that the Norwegian, and the Nordic, welfare models are in robust health,” say Arnesen and Hagen.

It is precisely the small Nordic countries that have best succeeded in adapting to a globalised world and a European marketplace. The Nordic countries are on top of the UN’s human development index, and of the World Economic Forum’s league table as well.

A successful restructuring

The restructuring of administrative bodies as independent state enterprises over the last couple of decades represented a comprehensive overhaul of the public sector. It has directly affected, in terms of changes to their employment situation, over 60,000 people.

The whole population has seen large swathes of society’s infrastructure being supplied in a way they recognise from other markets.

In their study of the restructuring of selected state enterprises, the BI researchers draw the following five main conclusions:

The policy has been successful: It has achieved the goals envisaged. Ownership has yielded great returns and reduced costs to the State. Users have received more and better services.

New user focus: The state enterprises’ forced market exposure has led to a whole new focus on the users of their services, compared with the outlook of the old administrative agencies. The state enterprises have consistently a good or very good reputation among users and in the general population.

Political control retained: There is no basis for asserting that “The politicians have lost control”. The objectives of the freeing-up, in the sense that the market’s willingness to pay should be more directly expressed in the spectrum of services and investment, has been largely achieved.

Good practical solutions: Norway has had a great advantage in that the process was conducted as a pragmatic search for good practical solutions. We can look back on a process that only to a modest degree was marked by ideological grandstanding and conflicts, first and foremost because the creation of the state enterprises was not linked to the question of simultaneous or subsequent privatisation.

Modernisation project: The freeing-up wave involved modernisation of large sections of society’s infrastructure. Organisation as state enterprises has led to a higher level of investment and efficient, user-oriented production in electricity, post and telecoms services and aviation (including the Oslo airport train link). In roads and railways, however, Norway is struggling with under-investment and capacity bottlenecks; in these areas there is potential for greater social gains through a greater exploitation of the advantages inherent in a more independent organisational form, via greater freedom for investment and development decisions.